Political Cycles in MGNREGs Implementation

Nordhaus (1975) is one of the earliest studies to provide a theoretical assessment of political business cycles, explaining opportunistic behaviour of political parties before the elections. This study is an attempt to find the nature of association between electoral incentives and the use of welfare policies in a federal democratic system through the lens of India‟s largest nationwide social security scheme, MGNREGS. Among the panel data random effects models, the Hausman-Taylor instrumental variable estimator is used for econometric modelling by leveraging data at a month on month level from April 2012 to June 2019 for twenty-two Indian states. The demand for work and person-days of work are considered for the analysis capturing respectively the demand and supply side variables of the program. After controlling for rainfall, rural population and landless agricultural labour, an asymmetric behaviour is observed for the states governed by regional parties such that they tend to generate significantly lower person-days of work near the central elections but show a significantly higher demand for work near the state elections. Moreover, states ruled by aligned central and state parties generate higher than average demand for work under the scheme. The over-arching framework of multi-party democracy and the dynamics of center-state relations present in centrally sponsored schemes create scope for such behaviour.